The City of Mirada wants to offer cable television to its residents in 2013. The city has approached a company called CableVision to run its cable operations. After negotiating with key parties, CableVision has made the following agreements:
Mirada will offer its residents a basic set of 25 cable television stations at a rate of $32.99 per month.
The City of Mirada will maintain the physical facilities, and CableVision will pay the city $120,000 per month plus $3.00 per cable subscriber per month.
CableVision will actually pay another company to broadcast the 25 channels and will pay this company an annual fixed fee of $700,000 plus a monthly amount of $7.50 per cable subscriber per month.
CableVision will incur additional operating costs for billing, program news mailings, etc. These costs will include a fixed component of $115,000 per month, and a variable component of 7.5% of monthly revenue.CableVision has several questions about its monthly revenues, costs, and profits in 2013.